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Tuesday, October 6, 2015

The City of Chicago imposed a tax on the lease of all
personal property within the City. In 2011, the City adopted the Personal
Property Lease Transaction Tax Second Amended Ruling No. 11 (“Ruling 11”) to
serve as guidance for application of the tax on the use of vehicles leased by
City residents from rental companies within three miles of the City
borders. Enterprise and Hertz filed actions against the City, seeking
declaratory and injunctive relief against the City’s attempt to tax car rentals
that occur within three miles of the City borders. The circuit court
found Ruling 11 to be unconstitutional and permanently enjoined the City from
enforcing the ruling with respect to short term rentals occurring outside the
City.

On appeal, the Illinois Appellate Court vacated the
injunction and ruled in favor of the City. Hertz
and Enterprise had argued that Rule 11 constituted a transaction tax which
improperly allowed extraterritorial taxation of rental car transactions outside
of the city limits. The City countered that the tax is not a transaction
tax, but instead only imposes a tax on City residents who lease vehicles in
surrounding areas and then use them primarily in the City. The court
found the tax constitutional, finding that it did not constitute an
unauthorized extraterritorial exercise of its taxing authority. The court
noted that Enterprise and Hertz had enough connection to the City to be
considered an agent for collection of the tax. Further, the nexus between
Enterprise and Hertz with the tax and the City was reasonable. The
Hertz Corporation v. City of Chicago, 2015 IL App (1st) 123210 (September 22, 2015).